Robert D. HormatsUnder Secretary for Economic Growth, Energy, and the Environment

Launch of NBR'S Energy Security Report

Washington, DC

September 20, 2012

As Prepared for Delivery

Thank you, Jane, for that kind introduction.

It is a privilege for me to be able to participate in another energy policy event organized by the The National Bureau of Asian Research (NBR) – Mikkal Herberg, Meredith Miller, and the rest of the team here have done a tremendous job of bringing this important issue to the forefront.

I joined NBR at previous events in Hanoi, Honolulu, and San Francisco, and I’m glad to see so many people here today for the launch of NBR’s energy security report, “Oil and Gas for Asia: Geopolitical Implications of Asia’s Rising Demand.”

I want to thank all of our speakers here today, as well as NBR for inviting me back to speak on an issue that is so central to our economic and national security and to the work of the bureaus in the State Department that I lead.

The essays in the report and the panel today address some of the fundamental questions that every country faces:

How to achieve energy security and figure out what it means in a global market;

The impact of a more diverse set of producers and consumers; and

How these factors affect the geopolitical landscape.

I therefore want to focus on these questions in my remarks, specifically from the viewpoint of the State Department, as we collaborate with the dynamic economies of the Asia Pacific.

Energy Demand in Asia and the United States

As you’ve heard from the experts here, the bottom line is Asia will drive most of the world’s future energy demand and import needs.

Energy demand is forecast to more than double across Asia between 2008 and 2035.

Within Asia, energy consumption across non-OECD Asian countries—including China, Indonesia, and India—is forecast to grow five times faster than the OECD states from now until 2035.

And countries in Asia are facing a higher level of dependence on oil and gas imports to fuel their economic growth.

Against the backdrop of rising Asian demand, the United States has continued to develop our own oil and gas resources, while taking steps to increase the role of renewable and to boost energy efficiency.

This “all of the above” strategy is allowing us to decrease our reliance on foreign fossil fuels just as Asia’s demand for those resources is increasing.

Today, the United States is one of the fastest growing oil producers in the world.

This is largely due to technological advances that enable us to increase production from shale and other unconventional sources.

Crude oil production today in the United States is 6.2 million barrels a day, the highest level since 2003. And that figure will grow.

Huge tight oil formations in North Dakota and Montana alone could considerably boost U.S. output.

As a result, America’s dependence on imported oil, which has been dropping since 2005, has fallen below 50 percent for the first time in more than a decade.

It should also be noted that in other parts of the world as well there has been a boom in production capacity and output, resulting from a surge in investment in the last decade and the widening use of horizontal drilling and fracking.

An even more dramatic story can be told of America’s natural gas industry.

Rapidly increasing unconventional gas production has reduced prices, making natural gas much more plentiful and significantly cheaper than it was a decade ago.

As a result, gas consumption in the United States is up 4.5 percent since 2008.

This includes a 14 percent increase in the electric power sector and a 26 percent increase in the transportation sector.

And this increased availability at low prices is encouraging many industries to think twice about shifting production abroad – and some to consider shifting back to the United States.

While today’s panel focuses on oil and gas, we also are very aware that our ongoing efforts to develop renewable energy sources also lessen our reliance on oil and gas.

Today, the percentage of total electricity generation in the United States from renewable sources—including hydrothermal, geothermal, solar, and wind—has increased almost 50 percent in the last decade (to over 4.1 trillion kilowatt hours).

For example, President Obama set fuel efficiency standards for cars through 2025 that are expected to save consumers $1.7 trillion at the pump or about $8,200 over the life of a vehicle.

This is the “all of the above strategy” that the President has charged us to pursue and it is not just good news for America, it is good news for Asia as well.

For every barrel of oil or drop of natural gas that is not imported to the United States, there is more available on the global market.

Already, analysts point to LNG from the Middle East that was slated for the United States just a few years ago and is now free to supply Asian or European markets.

For our European friends and partners, this gives them more options than a few years ago.

And the same is true for many countries in Asia.

And Africa is fast becoming an energy power house, supplying nearly as much oil to the United States as the Middle East.

Growing African supplies on world markets also provide for greater diversification of sourcing.

Before expanding on U.S. energy cooperation with the countries of the Asia Pacific, I want to be clear on one important point:

The United States’ decreasing reliance on oil and gas imports does not mean that we will disengage from the Middle East or any other part of the world.

The United States remains and will remain committed to stable, well-functioning global energy markets.

For these and other reasons, the United States also remains and will remain interested in the stability and well-being of the Middle East and other energy-producing parts of the world, as well as to freedom of navigation.

But we also expect other countries who have an interest in stable and well functioning global energy markets and reliable supplies to play a constructive role.

That is one among many reasons that we support a collaborative diplomatic process by all claimants to resolve their maritime disputes.

Cooperation in Asia

Turning to the Asia Pacific, I want to emphasize a point Secretary Clinton has made repeatedly during her tenure – that Asia will be one of the most important areas for U.S. engagement over the next decade.

Energy’s role in Asia’s economic development has been and will remain central.

The remarkable economic growth we have seen across Asia cannot be sustained without a reliable and adequate supply of energy to power Asia’s dynamic economies.

Without energy, these countries would lack the ability to provide for their citizens or to power:

Industrial production;

The agricultural machinery that boosts crop yields and raises farmers out of poverty; and

The laboratories where men and women use cutting-edge science to design and build the technologies of tomorrow.

Asia's growth and dynamism is central to American economic and strategic interests.

Growing markets in Asia provide the United States with unprecedented opportunities for investment, trade, and access to cutting-edge technology.

Also, we are developing a wide range of energy partnerships. We have a robust policy for active energy diplomacy in the region.

We are expanding our work with our bilateral partners – for example, we have signed MOUs with both India and China on energy and climate change cooperation.

These MOUs have outlined areas for collaboration in the areas of energy security, clean energy development and deployment, and climate change mitigation.

On China specifically, we believe that by collaborating through fostering exchanges of scientists and policymakers – some of which is happening under the U.S.-China Ten-Year Framework on Energy and the Environment – can combat environmental degradation in China, as well as global climate change.

We see some unique opportunities for cooperation with China where energy use has been growing rapidly over the last 10 years, making it the world’s largest energy consumer.

Manufacturing in China, and indeed overall growth in China, is extremely energy intensive, however, and must of the huge appetite for energy in China is fed by coal – 70 percent of it.

This makes China the world’s largest user of coal. At the same time, China is also at the top of the list of countries in renewable energy.

While China is investing heavily in renewables, it will remain heavily dependent on coal and other carbon-based fuels for a long time.

However, its current 12th Five Year Plan aims to accelerate the production and use of alternative energy sources, such as hydro-power, solar, wind, and improved energy efficiency.

American companies with excellent technologies and long experience in, for example, building energy efficient buildings or producing energy-efficient equipment have many opportunities to collaborate with Chinese partners in this area.

While this focus on cooperation with China is important, our policy efforts extend more broadly in the Asia Pacific as well.

Our Unconventional Gas Technical Engagement Program (UGTEP) works with countries interested in developing shale gas or other unconventional gas resources to create the appropriate systems, including the legal and regulatory framework, to develop unconventional gas safely and sustainably.

We also continue to have a strong and ongoing dialogue with Japan, Korea and other allies about global and regional energy challenges.

On the multilateral stage we have worked effectively with Asian partners.

For example, the G-20 countries have pledged to reduce inefficient fossil fuel subsidies and promote transparency in energy consumption and supply data.

Such steps will decrease market price volatility and remove market distortions to trade.

And I recently returned from the very productive APEC Leaders and Ministerial Meetings in Vladivostok where we agreed to limit tariffs to less than five percent on 54 energy efficient goods by 2015.

With respect to ASEAN, the United States was the first non-ASEAN country to establish a permanent Mission to ASEAN in Jakarta and appointed our first resident Ambassador to ASEAN in March 2011.

And in July of this year, I attended the first-ever U.S. –ASEAN Business Forum in Siem Reap and witnessed the important role that energy can play in ASEAN’s Connectivity Initiative.

And we also are actively involved with nations of the Lower Mekong on energy and infrastructure development.

Conclusion

In closing, Asia’s rapidly growing demand for energy is indeed a challenge we will all need to meet if we are to ensure a stable future for energy security in both Asia and the United States.

But I am convinced that this challenge is more an opportunity for collaboration than competition.

As we increase our engagement on these themes, we will ensure a consistent diversification of energy resources to meet our joint needs—from conventional sources, like crude oil and gas, to renewable sources, like wind, solar, and biofuels.

And we will do so in cooperation with our Asian partners, working in tandem with the public and private sectors.

It is this collaboration that I believe will define the future of energy security and economic growth on both sides of the Pacific in the decades to come.